Axel Johnson Inc. v. Arthur Andersen & Co.

• Decision Date: 27 September 1993
• Docket Number: D,No. 346,346
• Citation: 6 F.3d 78
• Parties: , Fed. Sec. L. Rep. P 97,766 AXEL JOHNSON INC., Plaintiff-Appellee, v. ARTHUR ANDERSEN & CO., Defendant-Appellant. United States of America, Intervenor. ocket 92-7624.
• Court: U.S. Court of Appeals — Second Circuit

Page 78

6 F.3d 78

62 USLW 2248, Fed. Sec. L. Rep. P 97,766

AXEL JOHNSON INC., Plaintiff-Appellee, v. ARTHUR ANDERSEN & CO., Defendant-Appellant United States of America, Intervenor.

No. 346, Docket 92-7624.

United States Court of Appeals Second Circuit.

Argued Dec. 21, 1992.

Decided Sept. 27, 1993.

Sanford P. Dumain, New York City (Melvyn I. Weiss, Deborah Clark-Weintraub, Milberg Weiss Bershad Specthrie & Lerach, of counsel), for plaintiff-appellee.

Eliot Lauer, New York City (Bernard V. Preziosi, Jr., Peter Sullivan, Curtis, Mallet-Prevost, Colt & Mosle, of counsel), for defendant-appellant.

Kay K. Gardiner, Asst. U.S. Atty., New York City (Mary Jo White, U.S. Atty., S.D.N.Y., Gabriel W. Gorenstein, Asst. U.S. Atty., Barbara Biddle, Scott R. McIntosh, Appellate Staff, Civ. Div., U.S. Dept. of Justice, Washington, D.C., of counsel), filed brief for the U.S. as intervenor and the S.E.C. as amicus curiae in support of appellee.

Theodore B. Olson, Washington, DC (Theodore J. Boutros, Jr., John K. Bush, Gibson, Dunn & Crutcher, of counsel), filed a brief amicus curiae on behalf of Deloitte & Touche, Ernst & Young, and KPMG Peat Marwick.

Before: PIERCE, ALTIMARI, and WALKER, Circuit Judges.

WALKER, Circuit Judge:

This appeal presents a challenge to the constitutionality of Section 27A of the Securities and Exchange Act of 1934 (the "Act"), 15 U.S.C. Sec. 78aa-1, as applied to reinstate plaintiff-appellee Axel Johnson Inc.'s ("Johnson") claims under Sec. 10(b) of the Act, 15 U.S.C. Sec. 78j(b) and Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 against defendant-appellant Arthur Andersen & Co. ("Andersen"), which had been dismissed as untimely under the regime of Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991).

BACKGROUND

In a complaint filed in the United States District Court for the Southern District of New York (Lasker, J.) on September 29, 1989, Johnson asserted against Andersen Sec. 10(b)/Rule 10b-5 claims, as well as pendent state law claims, related to Andersen's audit of a company Johnson purchased in December of 1982. Under the Sec. 10(b)/Rule 10b-5 statute of limitations doctrine applicable in the Second Circuit when it filed its complaint, which borrowed state-law-fraud limitations periods, seeCeres Partners v. GEL Assocs., 918 F.2d 349, 352-53 (2d Cir.1990), Johnson's federal claims were timely.

On November 8, 1990, in Ceres, the Second Circuit adopted a uniform federal statute of limitations period for Sec. 10(b)/Rule 10b-5 claims, requiring suit to be filed within one year of discovery of the violation and not more than three years after accrual of the violation. Under the rule announced in Ceres, Johnson's Sec. 10(b)/Rule 10b-5 claims would be untimely. Andersen moved to dismiss these claims alleging, inter alia, that they were barred by the statute of limitations. On April 30, 1991, following the reasoning of Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), and of our decision in Welch v. Cadre Capital, 923 F.2d 989, 995 (2d Cir.) ("Welch I "), vacated and remanded sub nom. Northwest Sav. Bank PaSA v. Welch, --- U.S. ----, 111 S.Ct. 2882, 115 L.Ed.2d 1048, opinion after remand,Welch v. Cadre Capital, 946 F.2d 185 (2d Cir.1991) ("Welch II "), Judge Lasker refused to apply Ceres retroactively to Johnson's federal claims, and denied Andersen's motion.

On June 20, 1991, in Lampf, the Supreme Court also adopted a uniform federal one-year/three-year statute of limitations for Sec. 10(b)/Rule 10b-5 claims. See --- U.S. at ----, 111 S.Ct. at 2781. On the same day, in James B. Beam Distilling Co. v. Georgia, --- U.S. ----, ----, 111 S.Ct. 2439, 2448, 115 L.Ed.2d 481 (1991), the Supreme Court held that where a court announces a new rule and applies it to the litigants before it, the new rule must also be applied to all pending and future cases. In Welch II, we held that Beam required application of the new uniform limitations period to all claims pending or filed after Ceres was handed down. See 946 F.2d at 187-88; see alsoHenley v. Slone, 961 F.2d 23, 26 (2d Cir.1992). Following Beam and Welch II, on October 11, 1991, Judge Lasker filed a memorandum opinion dismissing Johnson's federal claims as untimely and dismissing Johnson's pendent state law claims, and entered judgment for Andersen. The clerk of the court entered a record of the decision in the civil docket sheet, but did not file a separate judgment in the case. Johnson has not appealed the district court's judgment.

After the complaint was dismissed, Congress passed Sec. 27A as an amendment to the Act. The purpose of Sec. 27A is to preserve the Sec. 10(b)/Rule 10b-5 claims of certain plaintiffs which had been or would be dismissed as untimely under the regime of Lampf and Beam. Subsection (a) of Sec. 27A directs that the pre-Lampf statute of limitation rules (including rules of retroactivity) of the various circuits apply to cases pending on or before June 19, 1991, the day before Lampf and Beam were decided. Subsection (b) revives certain claims dismissed after Lampf and Beam were handed down that would have been timely under prior circuit court doctrines. ¹

On December 24, 1991--more than thirty days after the court entered judgment against it--Johnson moved under Fed.R.Civ.P. 60(b)(6) for an order vacating the October 11, 1991 judgment and reinstating the complaint. On April 25, 1992, the district court granted the motion, 790 F.Supp. 476, and, on May 7, 1992, granted Andersen's motion for certification of an immediate interlocutory appeal, pursuant to 28 U.S.C. Sec. 1292(b). On June 9, 1992, this court granted Andersen permission to appeal.

DISCUSSION

Andersen challenges the constitutionality of both subsections of Sec. 27A as applied in this case. First, Andersen challenges Sec. 27A(a)'s selective extension of the limitations period for certain Sec. 10(b)/Rule 10b-5 claims. Second, Andersen challenges the district court's reinstatement of Johnson's previously dismissed claims pursuant to Sec. 27A(b). We find Andersen's challenges to be without merit.

Constitutionality of Sec. 27A

A. Section 27A(a)

Andersen contends that Sec. 27A(a) violates the separation of powers through legislative usurpation of judicial powers. According to Andersen, Sec. 27A(a) does not change the statute of limitations "law" of

Sec. 10(b)/Rule 10b-5, but rather directs the courts to apply a particular rule of decision to a limited class of Sec. 10(b)/Rule 10b-5 cases without altering the statute of limitations applicable to those cases. We disagree and hold, along with all of our sister circuits that have considered the issue, that Sec. 27A(a) constitutes a valid change in law, rather than an improper act of congressional adjudication. SeeCooke v. Manufactured Homes, Inc., 998 F.2d 1256 (4th Cir.1993); Cooperativa de Ahorro y Credito Aguada v. Kidder Peabody & Co., 993 F.2d 269, 273 & n. 11 (1st Cir.1993); Berning v. A.G. Edwards & Sons, Inc., 990 F.2d 272, 278-79 (7th Cir.1993); Gray v. First Winthrop Corp., 989 F.2d 1564, 1569 (9th Cir.1993); Anixter v. Home-Stake Prod. Co., 977 F.2d 1533, 1547 (10th Cir.), reh'g granted in part, 977 F.2d 1549 (10th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1841, 123 L.Ed.2d 467 (1993); Henderson v. Scientific-Atlanta, Inc., 971 F.2d 1567, 1575 (11th Cir.1992), petition for cert. filed, No. 92-2061 (June 25, 1993); see also Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb Inc., 967 F.2d 742, 751 n. 6 (2d Cir.1992) (noting in dictum probable constitutionality of Sec. 27A).

The conceptual line between a valid legislative change in law and an invalid legislative act of adjudication is often difficult to draw. The leading case of United States v. Klein, 80 U.S. (13 Wall.) 128, 20 L.Ed. 519 (1872), concerned a claim for the proceeds of the sale of properties seized by the Federal Government from a Confederate sympathizer ("Klein"). Klein's administrator brought suit in the Court of Claims under a statute providing for recovery of such proceeds by persons innocent of charges of disloyalty. Klein had received a pardon for offenses arising from his actions during the Civil War. Relying upon an earlier Supreme Court decision holding that such pardons constitute proof of loyalty for purposes of the statute at issue, seeUnited States v. Padelford, 76 U.S. (9 Wall.) 531, 19 L.Ed. 788 (1870), the administrator prevailed in the Court of Claims. But while the Government's appeal was pending before the Supreme Court, Congress passed a statute that not only purported to divest the courts of jurisdiction over cases involving property claims against the United States in which pardons had been offered as proof of loyalty, but also required courts to treat such pardons as conclusive evidence of disloyalty. The Court held, inter alia, that the statute violated the separation of powers because it prescribed a rule of decision to the courts. SeeKlein, 80 U.S. at 146.

The rule of Klein precludes Congress from usurping the adjudicative function assigned to the federal courts under Article III. However, Klein does not preclude Congress from changing the law applicable to pending cases. SeeKlein, 80 U.S. at 146-47; see alsoInternational Union of Elec., Radio & Mach. Workers AFL-CIO Local 790 v. Robbins & Myers, Inc., 429 U.S. 229, 243-44, 97 S.Ct. 441, 450, 50 L.Ed.2d 427 (1976); Chase Sec. Corp. v. Donaldson, 325 U.S. 304, 311-12 & n. 8, 65 S.Ct. 1137, 1140-41 & n. 8, 89 L.Ed. 1628 (1945); United States v Our result in this case follows a fortiori from the Court's holding in Robertson. Like the Compromise, Sec. 27A(a) constitutes a change in law applicable to a limited class of cases. Prior to the enactment of Sec. 27A(a), under the rules of Lampf and Beam, all Sec. 10(b)/Rule 10b-5 claims were subject to the one-year/three-year statute of limitations period. Section 27A(a) changed this rule of law by establishing a different limitations period for...